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Fair Work Commission “shuts down” practice of directing employees to take unpaid leave during shutdown periods

Fair Work Commission “shuts down” practice of directing employees to take unpaid leave during shutdown periods

Published on May 3, 2023 by Wing Ho | 何宛穎律師 and Janine SmithWing Ho | 何宛穎律師 and Janine Smith


Shutdown provisions of 78 Modern Awards have been varied by the Fair Work Commission (“FWC”) effective from 1 May 2023. The FWC’s decision to vary the shutdown provisions was not without controversy, as the Full Bench of the FWC was split 2 to 1, with Commissioner Hunt dissenting. Below, we discuss what the change means for employers.

Which Awards are affected?

A full list of the affected Awards can be found in Attachment A to the FWC’s decision here.

What is a shutdown?  How is it different from a stand down?

A shutdown is a temporary cessation of operations planned in advance by a business.  An example of this is the Christmas & New Year holiday period, during which many offices close down.

A stand down, on the other hand, involves a stoppage of work caused by factors beyond the employer’s control, such as breakdown of machinery and natural disasters.  During a stand down, there is no useful work for employees to do.  They remain employed by their employer but do not work and are not required to be paid.  For our article about sick leave entitlements during a stand down, please click here.

What are the key elements of the new shutdown provision?

  1. An employer must give affected employees 28 days’ written notice of a temporary shutdown period.
  2. An employer must give written notice of a temporary shutdown period as soon as practicable to any employee who is engaged after the notice mentioned in point 1 above has been given.
  3. An employer may direct an employee to take a period of paid annual leave during the temporary shutdown period only to the extent that the employee has accrued such leave. The direction must be in writing and be reasonable. 
  4. If given a lawful direction under point 3 above, an employee must comply.
  5. If an employee has not accrued sufficient annual leave to cover the entire temporary shutdown period, the employer and employee may agree in writing for the employee to take unpaid leave for the part of the shutdown period.

Which employees are affected by the shutdown provision?

The shutdown provision applies to ongoing part time and full time employees.  It does not apply to casual employees, as casuals do not accrue leave entitlements.

How can employers manage employees’ annual leave in relation to a shutdown?

In deciding that a new shutdown provision be introduced, the FWC has indicated that the pre-existing practice of directing employees to take unpaid leave during a shutdown cannot continue. The majority of the Full Bench were of the view that this long established practice was not permitted by those terms of the Fair Work Act 2009 (Cth) which prescribe the contents of Modern Awards (a view with which the dissenting member of the Bench, Commissioner Hunt, strongly disagreed).

Some employers made submissions to the FWC saying that employees may exhaust their annual leave entitlements during the year leading up to a shutdown period.  The FWC has dismissed those concerns, saying that employers can “manage” employee requests for annual leave so that there is sufficient annual leave accrued to cover a shutdown period.

The FWC also commented at paragraph 70 of its decision:

There is nothing to prevent an employer from identifying useful work that could be performed in a part of its operation by employees who do not have sufficient accrued annual leave to cover all or part of a shutdown, and who do not agree to take leave without pay, from performing such work, provided the work is within the terms of relevant modern award provisions dealing with employer and employee duties.

In short, the FWC has asked employers to figure out their own solutions to get around annual leave shortfalls arising with a shutdown, as long as the solutions are in compliance with Australia’s workplace laws.

Significant change in established practice

This decision by the majority of the FWC Full Bench is the ultimate outcome of deliberations on the issue that commenced almost eight years ago, as recounted in a previous decision of a Full Bench of the FWC in August 2022. While it departs from a longstanding custom and practice, this is not to say that the majority of the FWC Full Bench erred in its interpretation of the relevant statutory provisions. However, the new approach may yet prompt superior court challenge.

If you would like further information or advice about managing issues arising due to shutdowns, please contact the Workplace Law team at Carroll & O’Dea Lawyers.

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